Obamacare begins to unravel

There was strong opposition to Medicare before it went in to effect in 1965, but after that, the health program for seniors quickly became an accepted and even popular part of the U.S. medical system.

Supporters of the Affordable Care Act, President Obama’s bold health reform law, often highlight the similarity to Medicare in terms of initial opposition. But Obamacare, as the ACA is known, is hardly catching on like Medicare did (at least not yet). In fact, the law suddenly seems more threatened than at any time since it was passed in 2010, and it’s now possible the whole unwieldy program could collapse.

Three things happened during the first 10 days of November that amount to a major downgrade in the prognosis for Obamacare. First, Republicans won a majority of seats in the Senate, giving them control of both houses of Congress. Second, the Obama administration sharply lowered its estimate for how many people will enroll in Obamacare in 2015. Third and probably most important, the Supreme Court agreed to hear a sleeper legal case that could have devastating consequences for Obamacare if the justices side with the plaintiffs.

The legal case, King v. Burwell, hinges on a linguistic technicality in the original ACA legislation that has become more important than anybody imagined at the time. The law says that federal subsidies meant to help many lower-income people pay for policies can only be issued through a healthcare exchange “established by the state.” But only 16 states have built such exchanges, with the rest relying on the federal exchange. When legislators drafted the law, they anticipated most states would set up their own exchanges, and the plaintiffs in the suit now contend that federal subsidies are not permitted in the 34 states that haven’t.

The whole issue will boil down to whether the justices think the technicality matters enough to upend the entire law. The odds seem tilted against the law. In the court’s other big decision on Obamacare, in 2012, a narrow 5-4 majority voted to uphold the law, with Chief Justice John Roberts unexpectedly siding with the majority. The issue is different this time, but the mere fact that the Supreme Court chose to accept the case indicates an interest among the justices in settling the matter definitively. Meanwhile, the law is no more popular now than it was two years ago, which could limit the societal repercussions of a vote against the law.

Huge implications

Fixing that linguistic seam in the law with new legislation would be easy—if Democrats still controlled both houses of Congress, as they did in 2010. But they don’t, so it’s hard to see how Republicans--who are united on no issue more than their opposition to Obamacare—would fix legislation they have pledged to repeal from the start. It’s possible there could be some kind of compromise law that keeps the ACA in place, but it would probably include so many Republican rollbacks that Obamacare would end up a different program entirely.

If the Supreme Court rules with the King plaintiffs and subsides are suddenly disallowed in 34 states, Obamacare could enter a “premium death spiral” in which the law’s economic underpinnings collapse and the law becomes unviable. The ACA is an elaborate system of economic levers and pulleys that will stop working if key cogs seize up. About 70% of the 7.1 million Americans currently enrolled in Obamacre live in one of the 34 states that use the federal exchange, and more than 80% of those folks receive subsidies. Overall, that’s about 4 million people, or 56% of those in Obamacare, who would lose subsidized healthcare if the high court rules against the federal exchange. And the raw number will be higher in 2015 as more consumers enroll in the program.

The Rand Corp. estimates that premiums would rise 43% for people who lost subsidies. Many of those people would probably forego insurance if the cost spiked, with low-risk patients bailing first. As the pool of people covered skewed toward riskier patients with costlier medical needs, the premiums for everybody left in the program would rise, too. The individual and employer mandates would crumble in the 34 states, since skyrocketing insurance costs would allow more people to claim an exemption for financial reasons, which the law allows. “The loss of these subsidies would make insurance unaffordable for many, if not all, of these newly insured individuals,” the nonprofit Commonwealth Fund notes in a new analysis. “The potential implications … could be huge.”

Further erosion of support

The Supreme Court is expected to issue a ruling in the first half of 2015, and if it rules against the ACA, there will be one vital unanswered question: Will there be a shift in political pressure once Congress has the power to effectively ax or prolong healthcare coverage for several million Americans? No doubt, there would be an uproar among people affected directly, but the broadest failure of Obamacare so far has been its lack of support among the middle class, including some who would probably be better off if they took advantage of the law.

The administration’s downgrade of estimated enrollees in 2015 highlights the problem. Until recently, the best estimate of 2015 enrollment came from the Congressional Budget Office, which predicted that 13.1 million Americans would be covered by the ACA in 2015. The White House now says the number will only be about 9.1 million, as new people sign up but some who had coverage in 2014 drop out.

That’s still a lot of people covered by Obamacare, but the law, on its own, faces another big challenge this year, as the IRS begins to enforce the “individual mandate” requiring most people to have health insurance. If enforcement is aggressive and publicity lousy, support for the law will erode even further, strengthening the hand of Republicans and others who want to kill it.

Some powerful interest groups will fight to keep the law intact. The insurance industry, for instance, has gained millions of new customers under the ACA and would lose money if consumers abandoned their policies. Some states reliant upon the federal exchange could lobby to keep that access open, or set up their own exchanges. And labor unions and other left-leaning groups could mobilize if healthcare for the masses is directly threatened. The only thing that seems sure is that Obamacare will be an issue in the next election, and the one after that, and probably the one after that. Medicare was a cakewalk, by comparison.